Latest NZIER Quarterly Survey of Business Opinion shows worst level of business confidence since March 2009

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The Government’s been given yet another loud wake-up call from the business community, with the influential NZIER Quarterly Survey of Business Opinion showing another drop in business confidence.

The survey released on Tuesday revealed that a net 28% of businesses expect economic conditions to worsen. This is the lowest level since March 2009. The New Zealand dollar dropped after the survey results came out, from US66.15c to US65.95c.

The most watched measure in the survey is that for firms’ own domestic trading activity. This is bad too. The NZIER said firms’ own activity for the September quarter and expectations for the next quarter both fell, indicating a slowing in economic growth over the second half of 2018.

A net 0.4% of firms reported higher demand over the September quarter, which is the lowest level since September 2012. 

Unsurprisingly, the Opposition seized on the survey results.

National’s Finance Spokesperson Amy Adams said the Government should “stop experimenting with the economy and cease being the biggest source of uncertainty for business”.

“It is arrogance to ignore the impact of bad policies.” (Adams’ full statement is at bottom of article)

ASB senior economist Jane Turner said the survey contained “some very weak details”, which confirms that economic activity has likely decelerated heading into the second half of 2018.

“We will likely revise our H2 2018 GDP growth forecasts in light of this weak outcome.”

ANZ senior economist Liz Kendall said Tuesday’s data from NZIER are consistent with a softening in GDP growth, which casts considerable doubt on the Reserve Bank’s expectation in its Auguest Monetary Policy Statement that annual GDP growth will accelerate from here.

“Today’s data will add to concerns about the current degree of economic momentum, providing a timely reminder that OCR cuts remain a distinct possibility. The RBNZ stands at the ready to support the economy should they deem it necessary to get inflation sustainably back to the midpoint in an acceptable timeframe. Accordingly, today’s data have the potential to move the RBNZ’s rhetoric further into dovish territory.

“We continue to believe that on balance the next OCR move is more likely to be a cut than a hike, though more “hard” evidence of a slowdown would be required to shift us from our flat track. Uncertainty persists regarding the degree to which firms will follow through on their downbeat intentions, Kendall said. 

Kiwibank chief economist Jarrod Kerr said the uncertainty generated out of the Beehive had persisted over the year.

“Firms’ concerns have yet to translate into materially weaker activity, however,” he said.

“We believe there may be an element of protest, anti-reform, voting taking place, especially in regard to labour market reform, tenancy reform and taxation reform (capital gains). There’s a lot for businesses and landlords (often one and the same) to get their heads around.

“It’s uncertainty that kills confidence. And it’s uncertainty that kills growth. So far we assume a large amount of posturing, and (hopefully) a limited amount of pass-through. But the risks are clearly down, not up. Today’s survey is exactly what keeps the RBNZ awake at night, and justifies the central bank’s dovish tilt.”

This is the statement from NZIER:

The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows a further deterioration in business confidence. A net 28 percent of businesses expect economic conditions to worsen – the lowest level since March 2009.

Firms’ own domestic trading activity is a better indicator of GDP growth than business confidence. Firms’ own activity for the September quarter and expectations for the next quarter both fell, indicating a slowing in economic growth over the second half of 2018.

A net 0.4 percent of firms reported higher demand over the September quarter – the lowest level since September 2012. 

Firms are worried about Government policy, labour costs and availability, margins and consumer confidence

Through the 50-year history of the QSBO, businesses have tended to be more downbeat about general economic conditions than their own domestic trading activity. The difference between headline business confidence and firms’ own trading activity tends to be larger under a Labour-led Government.

This quarter, we added a supplementary question to delve deeper into the key influences on general business confidence.

We found Government policy, labour costs, consumer confidence, availability of labour and operating margins were the key considerations for businesses when it came to an assessment of general economic conditions.

Larger firms were more influenced by Government policy when assessing the general business outlook. Retailers, manufacturers and builders were more influenced by concerns over labour shortages and costs and consumer confidence. 

This suggests uncertainty over the effects of new Government policies and higher costs have contributed to the decline in business confidence over the past year.

Further decline in profitability leads to softer hiring and investment intentions

Profitability continued to worsen, reflecting intensifying cost pressures for many businesses. Businesses remained pessimistic about an improvement in profitability.

This continued deterioration in profitability has made businesses more cautious, with a net 3 percent of businesses reducing headcount in the September quarter.

Businesses were also more circumspect about new investment, particularly for buildings. If profitability was to continue to worsen, businesses will likely hunker down and reduce investment and hiring.

Manufacturers now most pessimistic

Although the downbeat mood was broad-based across sectors, manufacturers have overtaken retailers as the most pessimistic sector. Weaker demand and rising costs have seen manufacturing sector confidence fall sharply.

Rising cost pressures also weighed on building sector confidence, with over half of firms in the sector reporting higher costs. Building sector firms reported some softening in demand in the September quarter, but architects’ measure of work in their office points to a pick-up in the pipeline of residential and commercial construction over the coming year.

Source: NZIER

This is the statement from Amy Adams:

The Government can’t continue to cling to policies that are harming the economy while trying to ignore the growing body of negative indicators, National’s Finance spokesperson Amy Adams says.

“The latest Quarterly Survey of Business Opinion shows the percentage of firms expecting economic conditions to deteriorate is at the highest since March 2009 and the important own activity measure is the lowest in six years.

“NZIER says the survey points to GDP growth of just 2 per cent in the year to September 30, well below the levels touted by the Finance Minister. Significantly, the survey found that Government policy was the biggest driver of business confidence, followed by labour issues.

“Instead of taking credit for the strong foundations built up by National, the Government should stop experimenting with the economy and cease being the biggest source of uncertainty for business. It is arrogance to ignore the impact of bad policies.

“National wants New Zealanders to keep more of what they earn. It believes in sensible, consistent economic policies that encourage businesses to grow, invest more, create more jobs and lift incomes.

“The QSBO shows this Government is doing the opposite. More firms cut staff in the latest quarter and they expect to reduce investment in the coming three months.

“These findings from NZIER are in line with other indicators. The Business Central survey this week shows businesses across the lower North Island remain broadly pessimistic and most ‘don’t think the Government has a plan to raise the country’s economic performance.’

“Business Central says businesses are ‘most concerned about uncertainty around the Government’s policies, finding the right staff, and future employment law changes.’

“New Zealand needs to maximise its opportunities not squander them or our ability to cope with external global shocks will be diminished and we will fall further behind comparable economies like Australia.

“The realities of overseeing an economy are being learned too slowly by this Government. It is clinging to a high-cost, feel-good wish list but offering little substantive policy to drive economic growth and deliver more opportunities for New Zealanders.” 

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